Canadian Dollar Weakens Amid Oil and Yield Shifts

The Canadian dollar has recently weakened against the US dollar, primarily due to lower oil prices and a decline in benchmark bond yields, despite earlier gains following unexpectedly strong core inflation data. April’s headline inflation in Canada dropped to 1.7%, but core inflation measures rose above 3%, leading to speculation that the Bank of Canada (BoC) may keep interest rates elevated for longer. Canadian 10-year government bond yields climbed to a four-month high above 3.3%, driven by mixed domestic inflation data and upward pressure from rising US Treasury yields, which responded to Moody’s downgrade of US sovereign credit and fiscal concerns. However, weak Canadian job gains and rising unemployment have limited the loonie’s strength by fueling expectations of a potential dovish shift from the BoC. Meanwhile, fiscal worries and a lackluster bond auction in the US have weighed on the US dollar, influencing global currency and bond markets. Investors are awaiting upcoming Canadian price data to assess the BoC’s next policy move.